Wednesday, April 15, 2015

Why Buying a Home in 2015 Won't Be Easier

The National Association of Realtors (NAR), among others, is predicting a robust housing market for 2015. Aside from the fact that NAR always predicts a great time to buy or sell a house, forecasts of a healthy market are premature at best.

I hate to be the party pooper and I hope I'm wrong,  I know too many people and read too many stories of people, mostly young, desperately trying to buy a home, and I wish they could. But here's why I don't think things will get any easier.

Every bustling housing market in my lifetime has been accompanied by--if not caused by--a significant credit expansion. While mortgage credit has loosened a bit lately, it's still not enough. I do not believe credit will expand much until private entities get back into the mortgage purchase and securitization. Right now, all we have is Freddie Mac and Fannie Mae, who are in receivership following a government takeover, and Ginnie Mae, the federal entity who backs VA and FHA loans. That's not enough.

Second, Baby Boomers and Gen Xr's own most of the existing homes, and they're not selling. Even with the recent overall rise in prices, too many of them have negative-to-low equity and therefore can't sell and move on. In the case of Boomer homes, a good number of them are dated and in need of repairs and upgrades. Most of today's cash-strapped buyers can't write a check for a new furnace and new appliances after closing.

That leaves the demand void to be filled by new home construction, and that's a bit of a wild card. The statistics are, well, fair to good: The National Association of Homebuilders is predicting 837,000 starts--a healthy increase, but far less than the 1.3 million average in 2000-2003. But still.

My issue with new home construction is that the homes being built aren't what people want. They're still boring, cookie-cutter boxes in bland subdivisions miles away from shopping. Boomers want smaller places with good walkability scores--as do Millennials. Developers and planners need to address this reality instead of pretending we're still in the 1970s, when land and building material and gas was cheap.

On the plus side, cash sales, which blow out first-time buyers, are declining, even though they're still around 35% of the total. Jobs seem to be increasing, and if pay follows, it would be good. Rising prices could squeeze out a few more listings, but even a slight uptick in mortgage interest rates (I'm predicting a 1% rise) will push against price increases.

Demand is high right now and will stay that way, especially with rents going through the roof. But supply is not, and will likely stay that way. Will there be a bubble? It feels like it at times, with over-bidding and multiple offers and insane prices being paid in hot markets. Maybe there is, but bubbles can pop and bubbles can slowly deflate. Absent some shock to the system such as war or unknown financial catastrophe such as China melting down, we'll probably skinny our way through.

If you are looking to buy a home in 2015, you'll just have to be patient.